BY MARCEL OKEKE
Marcel Okeke, a practising economist and consultant in Business Strategy & Sustainability based in Lagos, is a former Chief Economist at Zenith Bank Plc. He can be reached at: firstname.lastname@example.org; +2348033075697 (text only)
The Central Bank of Nigeria’s (CBN’s) widely publicised “release” of the sum of $265 million, out of about half a billion US dollars trapped funds of foreign airlines in Nigeria definitely raises many questions. The “release” of the fund, which was announced on Friday August 26, 2022, could best be described as a ‘too little too late’, given the fact that the pittance “released” by the apex bank, came after much harm had been done to the global image and economy of Nigeria. The recalcitrance or negligence of the CBN in not attending to the ‘cries’ and petitions of the behemoth foreign airlines for so long that their well-earned (ticket) incomes were trapped owing to ‘paucity’ of foreign exchange, has pushed them (the airlines) to the wall, practically. Many of them have irreversibly decided to turn their backs on Nigeria; others have opted to render only ‘skeletal services’ in Nigeria.
Indeed, soon after the announcement of the ‘dole’ from the apex bank to foreign airlines, the United States’ longest serving operator in Nigeria, Delta Airlines, revealed that it will from October 4, 2022, suspend flight operations between JFK Airport, New York and Lagos. The airline, which resumed operations on its Lagos—Atlanta route barely two years ago, on September 9, 2020, said in a statement that the “route suspension” was to fit into “the current demand environment.” Unsurprisingly, several days after the airlines’ pyrrhic victory of “release” of part of their funds by the CBN, none has announced a reversal or suspension of their earlier decision to quit Nigeria or cut their flight rounds into the country. For instance, the Dubai-based Emirate Airline had made public its decision to “suspend” flights to Nigeria, effective from September 2022. Emirate is yet to rescind or reverse this decision.
It will be recalled that the UAE leading airline got to the ineluctable decision after it literally went ‘through hell’ in seeking for ways and means to get the appropriate authorities in Nigeria to help it retrieve its $85 million trapped revenue. Emirate Airline had said in a statement that it “has tried every avenue to address our ongoing challenges in repatriating funds from Nigeria, and we have made considerable efforts to initiate dialogue with the relevant authorities for their urgent intervention to help find a viable solution.” The international carrier said, “regrettably, there has been no progress. Therefore, Emirates has taken the difficult decision to suspend all flights to and from Nigeria, effective September 1, 2022, to limit further losses and impact on our operational costs that continue to accumulate in the market.”
Like the Emirate Airline, the British Airways has already reduced its flight frequencies to Nigeria, as the airline informed its customers recently of an “imminent hike in its flight tickets.” In fact, Turkish Airlines and British Airways have said they would no longer issue tickets to passengers in naira. Both airlines said in separate messages recently that (their) Nigerian passengers can only pay for tickets in US dollars. Although these airlines may not have implemented their dollar policy to the letter owing to legal tender and sovereignty issues, their new ticket sales approaches and methods have obviously posed more hardship and restrictions to Nigerian travellers/air passengers. Thus, Nigerian customers of these airlines have been exposed to motley hardships and frustration, and not a few of them now resort to flight take-offs from neighbouring countries like Ghana, Benin Republic, Togo, among others.
Again, it should be noted that before the CBN’s intervention with the $265 million “release”, the global body of the airlines — the International Air Transportation Association (IATA) — had itself announced the frustration of these foreign airlines over their inability to repatriate trapped ticket revenues totalling about $465 million as of July 2022. This showed a $14 million increase from what the sum was in May, 2022 — meaning that the amount keeps rising day by day. And so, with the “release” of barely half of the entire trapped fund after extreme frustrations and near-hopelessness, are the airlines motivated to continue ‘business as usual?’ In real terms, which airline gets what portion of the “released” foreign exchange (dollars)?
If it took all these troubles for just half the ‘blocked’ sum to be “released”, who knows when next another ‘crumb’ shall be “released”? The UAE flag carrier — the Emirates Airline — practically explored all channels to retrieve its trapped $85 million to no avail, according to the statement announcing its proposed suspension of flights into Nigeria. But how much of the “released” sum will accrue to the Dubai-based airline? Given that at present there are more than twenty-five international airlines operating in Nigeria and the about half a billion dollar trapped fund, will the “released” sum not make only a thin spread among them (the airlines)? Is the apex bank in a position to confidently assure the airlines when next it would give them another tranche of the trapped funds? It is very doubtful!
All these questions are germane and critical, in view of the worsening foreign exchange scarcity in Nigeria. And the end to it is not foreseeable. Forex inflow from oil sales (Nigeria’s economic mainstay) is under a serious threat by the weird phenomenon of oil theft — an organised criminality that ensures a huge volume of Nigeria’s crude oil is illegally sold by some gangs with the collusion of unscrupulous officials in public places. Also, the controversial oil subsidy maintained by the federal government, and which guzzles trillions of Naira — keeps draining the public purse to no end. At the same time, Nigeria is already in a serious external debt trap; and so, debt service obligation has become a proverbial sword of Damocles on the neck of the country. This situation has gotten so bad that government revenue is no longer sufficient to service the public debt, as relevant official records show.
The question again rebounds: what impact will the “released” fund by the apex bank to the thoroughly frustrated airlines make? Is the money ‘big’ enough to hold them back to continue their normal businesses in Nigeria? Or, will they still pull out and focus on getting their entire trapped funds out of the country? Howbeit, Nigeria is in a fiscal tenterhook; and there is no easy way out. The pronouncements of the minister of finance to the effect that the country would borrow about twelve trillion naira in running the 2023 budget further underlines the grim fiscal outlook of Nigeria. The minister, Zainab Ahmed, who spoke while presenting the 2023-2025 Medium Term Expenditure Framework (MTEF) and Fiscal Policy Papers to the Finance Committee of the Federal House of Representatives in Abuja also bemoaned the crippling effect of fuel subsidy on government finances.
In the end, has the CBN’s last minute “release” of a tranche of the long-trapped funds further put the airlines between Scylla and Charybdis? Will the continued stay in Nigeria not get these airlines into having more of their funds trapped? Will their immediate exit, on the other hand, not expose a good chunk of their remaining funds to being ‘blocked’ for much longer. So, what next?
- business a.m. commits to publishing a diversity of views, opinions and comments. It, therefore, welcomes your reaction to this and any of our articles via email: email@example.com